Blog: 1 March 2024 - Trowers and Hamlins, Corporate Partner

High street rental auctions – a new power for local authorities to rent out vacant commercial property

The concept of high street rental auctions was first introduced in the Queen's Speech in May 2022 under the Levelling Up and Regeneration Bill in a bid to revitalise the high street and tackle the number of empty shops. 

The government has described the prolonged vacancy of shops as a blight on the high street, with boarded up empty shops attracting antisocial behaviour and entrenching economic underperformance. 

In order to try and address this issue, the government has introduced a new discretionary power for local authorities to rent out persistently vacant empty shops within Part 10 of the Levelling Up and Regeneration Act 2023 (the Act). 

Part 10 of the Act is not yet in force.  It is expected that regulations will follow once the government has considered the responses to its consultation exercise.

The statutory framework

The legislation allows a local authority to designate certain areas as 'high streets' and 'town centres' if it considers the area to be important to the local economy because of a concentration of high street uses such as shops, pubs, and cafes. Any such designation will be registered as a local land charge.

If a property has been:

1) unoccupied for either a whole year or 366 days within a two year period (the vacancy condition); and

2) the local authority considers that the occupation of the property for a suitable high street use would be beneficial to the local economy, society, or environment (the local benefit condition),

then the local authority may serve an initial letting notice on the landlord.

Whilst the initial letting notice is in force, the landlord cannot let out the property without the consent of the local authority.  Consent should not be withheld where the letting will:

1) take effect within 8 weeks of the initial letting notice;

2) be for at least one year; and

3) the occupation will be for a high street use.

If the property remains vacant, then the local authority may serve a final letting notice on the landlord.  Whilst a final letting notice is in force, a restriction on letting the property remains, and additionally, the landlord is prohibited from carrying out any works to the property unless consent from the local authority is given.  The landlord has the right to serve a counter notice and appeal the decision of the local authority on the grounds set out in Part 1 of Schedule 20 to the Act.  Examples of such grounds are where the landlord intends to demolish or carry out construction works at the property which won't be possible if the property is let out, or the landlord intends to occupy the property itself.

Where a final letting notice remains in force, and the property remains vacant, the local authority may arrange for a rental auction to be carried out. Regulations are to be made containing the detail of:

1) the auction process;

2) the suitable use of the property;

3) who will be classed as a successful bidder; and

4) the terms on which the local authority may contract.

A local authority has the power to enter into an agreement for lease and lease with the successful bidder as if it was entered into by the landlord of the property instead of the local authority. The local authority is to act in its own name, but with an indication that it is acting to bind the landlord rather than itself. Any lease granted pursuant to the provisions of the Act is excluded from the security of tenure provisions of the Landlord and Tenant Act 1954, and section 208 of the Act deems that any superior landlord and mortgagee consent required has been granted.

The agreement for lease may require the landlord to carry out works to bring the property up to a minimum standard, and leases will be for a minimum of one year and a maximum of five years.

Consultation

The consultation has provided further insights into what will be contained in the auction pack, the marketing process, and the standardised lease.  Perhaps most interestingly, the requirements of the MEES regime will be disapplied 'to ease the burdens on landlords' and properties with EPC ratings of F and G may be let out. New permitted development rights will be introduced to allow a change of use to a suitable high street use without the need for planning permission (where planning permission would otherwise be required).

It is not yet clear who will be paying the costs involved in the process, but the consultation states that high street rental auctions have been designed to minimise costs for all parties involved.

Will high street rental auctions have the desired effect?

This new power will be a useful additional tool for local authorities who wish to regenerate their areas but are faced with uncooperative property owners.  The Local Government Association has broadly welcomed the new power subject to it being simple, inexpensive, and effective to use if required (Local Government Association, 2023).  The British Retail Consortium has also welcomed the power but has stated that the underlying cause of empty shops is the business rates burden which has not been addressed (British Retail Consortium, 2022 cited in Fish, 2022). Further business rate support for 2024/2025 has been unveiled by the government through the extension of the discretionary business rates relief for the hospitality, leisure, and retail sectors.  However, this is only a temporary measure, and does not allow businesses to plan for the medium to longer term.  The Institute of Place Management has estimated that high street rental auctions might assist in 1 or 2 of every 20 vacant units and have flagged that the power will require active monitoring by local authorities to determine when the vacancy condition has been met (Institute of Place Management, 2023). Clarity is also needed on circumstances where a property is unoccupied, but a tenant or guarantor remains liable for the payment of rent and other outgoings such as business rates.

What do you think of the new power, and will you be keen to use it?

References

Planning reforms. (2022, June 22). Local Government Association. https://www.local.gov.uk/parliament/briefings-and-responses/planning-reforms

Fish, I. (2022, May 27). Industry verdict on the “empty shop bill.” Drapers. https://www.drapersonline.com/news/industry-verdict-on-the-empty-shop-bill

High Street Rental Auctions – IPM position paper (June 2023). Institute of Place Management.  https://www.placemanagement.org/media/rfzpzvtn/hsra_publication_0623.pdf

Lucie Allen, Senior Associate, Trowers and Hamlins